BRUSSELS/DUBLIN (Reuters) - EU antitrust regulators have blocked a third attempt by Ryanair (RYA.I) to buy Irish rival Aer Lingus AERL.I, a ruling Europe's biggest low-cost airline called politically motivated and vowed to challenge in court.
The European Commission, which vetoed Ryanair's first takeover bid for Aer Lingus in 2007, said on Wednesday Ryanair had not offered sufficient concessions to allay concerns about the combined company's dominance or monopoly on 46 routes.
It said the 694 million euro ($907 million) bid, which was opposed by the Irish government, could hurt competition and lead to over 11 million passengers paying more.
"For (Irish and European passengers), the acquisition of Aer Lingus by Ryanair would have most likely led to higher fares," EU Competition Commissioner Joaquin Almunia said.
Ryanair, which owns 30 percent of Aer Lingus and has been battling to buy Ireland's 75-year-old former flag carrier to strengthen its market position, had promised to divest some of Aer Lingus's routes to British airline Flybe (FLYB.L) and British Airways (ICAG.L) in an attempt to win over regulators.
Ryanair described its concessions as unprecedented and rejected the Commission's arguments.
"We believe that we have strong grounds for appealing and overturning this politically-inspired prohibition," it said.
Ryanair's appeal could scare off other possible strategic investors in Aer Lingus and frustrate the Irish government's efforts to divest its 25 percent stake in Aer Lingus, part of Ireland's 85-billion-euro EU/IMF bailout.
Ryanair shares closed down 1 percent at 5.60 euros. Aer Lingus's were up 0.4 percent at 1.245 euros.
The Irish government welcomed the Commission's decision.
"The government's view very strongly was that we want to see lots of airlines flying in and out of Ireland, lots of competition and lots of routes," Transport Minister Leo Varadkar told Irish national broadcaster RTE.
"Ryanair spends a lot of time and money in the courts and generally doesn't get much success from their actions. But that's a decision for them," he said of Ryanair's appeal.
Aer Lingus chief executive Christoph Mueller said Ryanair's appeal was motivated by a desire to derail a probe undertaken by Britain's Competition Commission into Ryanair's stake in the carrier.
The Competition Commission probe was paused after Ryanair challenged it jurisdiction to make a ruling while the European Commission was investigating a merger.
It has indicated, however, that an appeal by Ryanair over the European Commission decision was unlikely to delay its investigation further.
John Schmidt, a partner at London-based Shepherd and Wedderburn said the European Commission decision would likely make it more likely to rule that Ryanair's 30 percent stake gives it unfair influence over its rival.
"Given the case on substance and the Commission's margin of discretion I am not sure an appeal will ultimately be successful," Schmidt said.
Some antitrust lawyers said the Commission's decision could have implications for another airline merger in the pipeline.
"The Greek carriers Olympic and Aegean will be following this closely for pointers as to how their planned tie-up will be analysed," said Paul McGeown, a partner at Wilson Sonsini Goodrich & Rosati in Brussels.
Aegean Airlines (AGNr.AT) unveiled its 72-million-euro bid for Olympic Air (MRFr.AT) in October last year, two years after the Commission rejected its first offer. Aegean said its latest proposal aims to ensure its survival in a shrinking market.
The companies are now in informal discussions with the EU competition authority and are expected to formally file for approval of the deal in the coming days.
Additional reporting by STephen Mangan and Padraic Halpin in Dublin; Editing by Rex Merrifield and Elaine Hardcastle